RPT-Fitch Affirms ITNL Offshore's Yuan Bonds at 'BBB-'

March 17 (Reuters) - (The following statement was released by the rating agency)

Fitch Ratings has affirmed the rating on ITNL Offshore Pte. Ltd's (IOPL) CNY630m
5.75% bond due April 2015 at 'BBB-'.

KEY RATING DRIVERS

Guarantee by EXIM: The affirmation is based on the continued, unconditional and
irrevocable guarantee of up to USD114m provided by Export Import Bank of India
(EXIM, BBB-/Stable). The rating is also supported by a principal account of
USD4m and a debt service reserve account (DSRA) amounting to one semi-annual
coupon payment of around USD2.4m. The guarantee is available on a pari passu
basis to both the bondholders and the provider of a swap to mitigate foreign
exchange risk. The claims of the bondholders will have preference over the DSRA,
while the principal account will be available on a pari passu basis to both the
bondholders and the swap provider.

Foreign Exchange Risk Mitigated: The foreign exchange risk - with the debt
obligation being in Chinese yuan while the guaranteed amount is in US dollars -
has been mitigated through a swap arrangement. The CNY630m 5.75% bond is swapped
into an USD100m 4.8% loan with Deutsche Bank AG (A+/Stable). If the swap
continues till the bond's maturity, there will be no exchange rate risk.

However, if the swap is terminated before the bond's maturity, IOPL has to pay
the swap holder a termination value based on adverse movement in exchange rates
(yuan depreciation) and interest (increase in the base rates). In this case, the
USD114m guarantee from EXIM and USD4m in the principal account, are expected to
be sufficient to meet bondholder payments as well as payments to the swap
provider at termination value, even under severe adverse movements in interest
rates and the yuan-dollar exchange rate.

Overcollaterisation Provides Additional Buffer: The transaction also benefits
from an overcollateralisation covenant, under which the sum of the bond's
US-dollar guarantee and the balance in the principal account (and adjusted for
the mark-to-market value of the swaps) must be more than 103% of the
yuan-denominated sum of the principal amount of the bonds and one half-yearly
interest payment. If the cover falls below 103%, then IOPL is required to fund
the principal account in US dollars such that the US dollar cover is at least
108% of the yuan amount. Currently the overcollateralisation is about 114% of
the yuan amount, providing significant headroom.

Bond Proceeds Part Fund Acquisition: IOPL used the bond proceeds to extend an
USD89m loan (net of expenses and balances in the principal and interest
accounts) to its associate company ITNL International Pte Ltd (IIPL). IIPL used
the funds to repay part of the debt taken to purchase a 49% stake in Chongqing
Yuhe Expressway Ltd (Yuhe). IIPL's income mainly comes from dividends and
service fees from China-based Yuhe. Based on Fitch's estimates, it is unlikely
that the cashflows received by IIPL from Yuhe will be sufficient to meet its
interest costs over the next two to three years. The interest cost shortfall as
well as the principal repayment will have to be funded through debt and exposes
IIPL to refinancing risks.

Keepwell and Cross Default Clause with ITNL: India's IL&FS Transportation
Networks Ltd (ITNL) - IOPL's 100% shareholder - has entered into a keepwell
agreement with IOPL, under which, in the event that IOPL does not have
sufficient cash or other liquid assets to meet any of its obligations,
indebtedness, liabilities, costs, expenses or other payment obligations, ITNL
will endeavour to make available to IOPL funds sufficient to meet such
obligations in full.

The notes also contain a cross-default clause that includes ITNL. Fitch views
ITNL's credit profile as being materially weaker to EXIM's credit profile. The
rating of IOPL's bonds is linked to the guarantee by EXIM based on the
aforementioned features of the transaction.

RATING SENSITIVITIES

Positive: Future developments that may, individually or collectively, lead to
positive rating action include

-An upgrade of EXIM's rating

Negative: Future developments that may, individually or collectively, lead to
negative rating action include